Market CommentariesIndustrial Production Increases Nicely In July

Industrial production showed somewhat more strength during July than had been anticipated earlier. Specifically, that measure of factory output rose by 0.4% last month, twice the gain earlier forecast. Also, the prior month's increase was revised from an earlier 0.2% gain to one twice that large. All told, this was the sixth industrial production increase in as many months. In all, industrial production has risen by 5.0% in the past year. 

Helping last month's output was a 10.1% jump in automobile production. To wit, excluding this component, industrial production gained a more modest 0.2% in July. Also, of note in this report, was a 3.4% pullback in utilities output, which was the result of decreased air conditioner usage last month. We would expect a similar result in August given the below average temperatures in effect for much of the country so far this month. Forecasts for the remainder of August also call for lesser temperatures. So, we could see further weakness in this category in the data due out the middle of next month.

Breaking the report down a little further, we see that manufacturing output, by far the largest of the three categories examined in this report (along with mining and utilities), jumped a full percentage point in July, obviously helped by the aforementioned surge in auto output. Expectations here had been for a gain of 0.4%. In June, this component rose by 0.3%. That category, too, was revised upward from an initially estimated increase of just 0.1%. Meanwhile, mining output gained a modest 0.3% last month.

Meanwhile, factory utilization came in at 79.2% of capacity last month, which was exactly on expectations. In June, that tally had been 79.1%; in May, it had been 79.0%. A year ago, U.S. factories had been operating at 77.5% of capacity. The current rate of use is just about right, as far as the nation's economic health is concerned. That is, the rate is high enough to suggest that the economy is going along nicely, but the 79.2% pace of use also is sufficiently low to ensure that the inflation-inducing materials and labor shortages will not evolve in the very near term.       

Looked at as a whole, this was a solid report, and one that raises our level of confidence that any falloff in the current quarter from the 4.0% level of GDP growth enjoyed in the April-through-June period will be modest. For now, we suspect that the U.S. economy will go along at a 3.5%, or so, rate in the current three months.